Discount Offers - how much is enough?

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Deciding on the value of a promo voucher can be tricky. With any money-off promotion, it’s easy to assume that the more generous the offer, the better the likely take-up rate. But this isn’t necessarily so. ‘There’s no such thing as a free lunch’ is what usually springs to mind when we’re offered something that seems too good to be true. ‘What’s the catch?’ we ask ourselves. ‘Why are they doing this? They must be desperate.’ It’s for this reason that some people purposely avoid offers. If it’s cheap, they reason, it can’t be any good.

This presents the restaurateur with a dilemma, especially in a recession. Should he can stand firm and charge everything at full price or hand out vouchers to all and sundry and practically give away his meals? Somewhere between these two extremes lies a satisfactory compromise.

The optimum value of any promotional voucher depends on the type of venue, the average spend per head and the margins applied, so will vary from one establishment to another. The underlying goal is to pitch an offer at a level that’s attractive enough to tempt customers without making them suspicious, but not so extreme that it wipes out the profits at the same time. At the very least, it makes sense to try and recover food costs but beyond that, it’s often a case of trial and error. But bear in mind that if you’re already open, with the overheads paid and the chef waiting in the kitchen, then filling empty tables, even at no profit, is still a good way to show off your restaurant. If people enjoy it they’ll come back.

As a rule of thumb, if you set an upper limit for any discount or offer of 75% of the average spend at your restaurant, you’ll stand a good chance of recovering the food costs

Example – The Crown

The average spend at this gastro pub is £40 for 2 people. Food costs are well-controlled with an average mark-up of 400%. The Crown runs a voucher promotion each October to attract new customers in the run-up to Christmas, pitching the voucher value at 75% of the average spend. So, a typical couple dining with a £30 voucher would pay around £10 towards their meal, enough at least, to cover food costs. The Crown stands a good chance of recovering its stake. Just one subsequent booking from this couple will probably generate enough to recover the value of the voucher and if they keep on coming back then The Crown will end up benefiting more than the customer.

Note re VAT – All our examples purposely ignore the effects of VAT, a complex topic which varies from one country to another and is outside the scope of a marketing website. Before embarking on any promotion involving vouchers, tokens or discounts, VAT-registered businesses are advised to seek advice from their accountant or local VAT office. For UK businesses here is some useful information on the HM Revenue & Customs website

Discount offers - How much is enough?

How to make maximise the long-term benefits of a special offer